Deflation is winning

[Arraya]

Here is one guys take on the dollar.

Dollar Death Dance

http://www.contraryinvestorscafe.com/broadcast.php?media=143

[34f3f3f]

[quote=barnaby33] Fundamentally when debt is paid in a fiat system, money is destroyed and the pool of available money shrinks.

Technically, people are trying to acquire dollars and they are in shorter supply (because of demand for them) they become a commodity unto themselves and respond to that scarcity.
[/quote]

Josh, I really enjoyed this theory even if it did go over my head a little. I’m not even going to take a stab in the dark at the first para? When you say the dollar is becoming a commodity, do you mean cash reserves or USTs, or both?

[34f3f3f]

[quote=barnaby33] Fundamentally when debt is paid in a fiat system, money is destroyed and the pool of available money shrinks.

Technically, people are trying to acquire dollars and they are in shorter supply (because of demand for them) they become a commodity unto themselves and respond to that scarcity.
[/quote]

Josh, I really enjoyed this theory even if it did go over my head a little. I’m not even going to take a stab in the dark at the first para? When you say the dollar is becoming a commodity, do you mean cash reserves or USTs, or both?

[34f3f3f]

[quote=barnaby33] Fundamentally when debt is paid in a fiat system, money is destroyed and the pool of available money shrinks.

Technically, people are trying to acquire dollars and they are in shorter supply (because of demand for them) they become a commodity unto themselves and respond to that scarcity.
[/quote]

Josh, I really enjoyed this theory even if it did go over my head a little. I’m not even going to take a stab in the dark at the first para? When you say the dollar is becoming a commodity, do you mean cash reserves or USTs, or both?

[34f3f3f]

[quote=barnaby33] Fundamentally when debt is paid in a fiat system, money is destroyed and the pool of available money shrinks.

Technically, people are trying to acquire dollars and they are in shorter supply (because of demand for them) they become a commodity unto themselves and respond to that scarcity.
[/quote]

Josh, I really enjoyed this theory even if it did go over my head a little. I’m not even going to take a stab in the dark at the first para? When you say the dollar is becoming a commodity, do you mean cash reserves or USTs, or both?

[34f3f3f]

[quote=barnaby33] Fundamentally when debt is paid in a fiat system, money is destroyed and the pool of available money shrinks.

Technically, people are trying to acquire dollars and they are in shorter supply (because of demand for them) they become a commodity unto themselves and respond to that scarcity.
[/quote]

Josh, I really enjoyed this theory even if it did go over my head a little. I’m not even going to take a stab in the dark at the first para? When you say the dollar is becoming a commodity, do you mean cash reserves or USTs, or both?

[kewp]

[quote=qwerty007]
Josh, I really enjoyed this theory even if it did go over my head a little. I’m not even going to take a stab in the dark at the first para? When you say the dollar is becoming a commodity, do you mean cash reserves or USTs, or both?
[/quote]

Baranaby33 is not correct. Repaying debt is not deflationary in the classic sense. If I loan you a dollar, then you pay me back a dollar and ten cents a week later the net money supply is the same. Especially since I’m just going to loan out your $1.10 to someone else.

It *can*, however, lead to lower prices in some cases. If I’m giving you my $1.10 I’m not using it to buy food, fuel, or speculate in the futures market (all inflationary). In the current environment its somewhat deflationary as the banks aren’t lending.

Debt destruction means a default. You loan me a dollar, I use it to light my cigar and then give you the finger. The net money supply is reduced, leading to true deflation.

[kewp]

[quote=qwerty007]
Josh, I really enjoyed this theory even if it did go over my head a little. I’m not even going to take a stab in the dark at the first para? When you say the dollar is becoming a commodity, do you mean cash reserves or USTs, or both?
[/quote]

Baranaby33 is not correct. Repaying debt is not deflationary in the classic sense. If I loan you a dollar, then you pay me back a dollar and ten cents a week later the net money supply is the same. Especially since I’m just going to loan out your $1.10 to someone else.

It *can*, however, lead to lower prices in some cases. If I’m giving you my $1.10 I’m not using it to buy food, fuel, or speculate in the futures market (all inflationary). In the current environment its somewhat deflationary as the banks aren’t lending.

Debt destruction means a default. You loan me a dollar, I use it to light my cigar and then give you the finger. The net money supply is reduced, leading to true deflation.

[kewp]

[quote=qwerty007]
Josh, I really enjoyed this theory even if it did go over my head a little. I’m not even going to take a stab in the dark at the first para? When you say the dollar is becoming a commodity, do you mean cash reserves or USTs, or both?
[/quote]

Baranaby33 is not correct. Repaying debt is not deflationary in the classic sense. If I loan you a dollar, then you pay me back a dollar and ten cents a week later the net money supply is the same. Especially since I’m just going to loan out your $1.10 to someone else.

It *can*, however, lead to lower prices in some cases. If I’m giving you my $1.10 I’m not using it to buy food, fuel, or speculate in the futures market (all inflationary). In the current environment its somewhat deflationary as the banks aren’t lending.

Debt destruction means a default. You loan me a dollar, I use it to light my cigar and then give you the finger. The net money supply is reduced, leading to true deflation.

[kewp]

[quote=qwerty007]
Josh, I really enjoyed this theory even if it did go over my head a little. I’m not even going to take a stab in the dark at the first para? When you say the dollar is becoming a commodity, do you mean cash reserves or USTs, or both?
[/quote]

Baranaby33 is not correct. Repaying debt is not deflationary in the classic sense. If I loan you a dollar, then you pay me back a dollar and ten cents a week later the net money supply is the same. Especially since I’m just going to loan out your $1.10 to someone else.

It *can*, however, lead to lower prices in some cases. If I’m giving you my $1.10 I’m not using it to buy food, fuel, or speculate in the futures market (all inflationary). In the current environment its somewhat deflationary as the banks aren’t lending.

Debt destruction means a default. You loan me a dollar, I use it to light my cigar and then give you the finger. The net money supply is reduced, leading to true deflation.

[kewp]

[quote=qwerty007]
Josh, I really enjoyed this theory even if it did go over my head a little. I’m not even going to take a stab in the dark at the first para? When you say the dollar is becoming a commodity, do you mean cash reserves or USTs, or both?
[/quote]

Baranaby33 is not correct. Repaying debt is not deflationary in the classic sense. If I loan you a dollar, then you pay me back a dollar and ten cents a week later the net money supply is the same. Especially since I’m just going to loan out your $1.10 to someone else.

It *can*, however, lead to lower prices in some cases. If I’m giving you my $1.10 I’m not using it to buy food, fuel, or speculate in the futures market (all inflationary). In the current environment its somewhat deflationary as the banks aren’t lending.

Debt destruction means a default. You loan me a dollar, I use it to light my cigar and then give you the finger. The net money supply is reduced, leading to true deflation.

[Fearful]

[quote=kewp]

Baranaby33 is not correct. Repaying debt is not deflationary in the classic sense. [/quote]

Yes and no. If the money borrowed to fund consumption comes from a pool of financial assets, then the borrowing is price inflationary. If the money borrowed to fund consumption comes from workers’ wages, then it is not price inflationary.

The fallacy comes from thinking of all money as one pool that is being used for consumption. If that were the case, price inflation would have been horrendous as total debt increased dramatically over the last decade.

When the government borrows money – issues treasuries – to fund a stimulus payment, it is inflationary to the extent that the stimulus payments are spent and used to fund consumption. If recipients of the payments use them to pay down debt or otherwise save and do not consume with the money, the stimulus payments are not inflationary. Of course, the reverse happens when the debt matures and is paid off. This ties to the great debate of the impact of mortgage equity withdrawal, which effectively acted as an ongoing stimulus payment over the last eight to ten years.

On the original topic: Deflation leads to a stronger currency, which decreases import prices and weakens the export sector. The former creates deflationary expectations, and the latter decreases the velocity of money. Both result in deflation. Whether this feedback loop, which also works for inflation and a weakening currency, starts with prices or the currency is a moot point, though currency changes might come first, driven by speculation or risk aversion.

In any event, it is hard for me to imagine Fed and Treasury not intervening to weaken the dollar to ward off deflation. Right now things look awfully deflationary. Watch for a lowered Fed Funds Rate or – not sure how this would work – U.S. open market operations to sell dollars and buy foreign currencies.

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.

[Fearful]

[quote=kewp]

Baranaby33 is not correct. Repaying debt is not deflationary in the classic sense. [/quote]

Yes and no. If the money borrowed to fund consumption comes from a pool of financial assets, then the borrowing is price inflationary. If the money borrowed to fund consumption comes from workers’ wages, then it is not price inflationary.

The fallacy comes from thinking of all money as one pool that is being used for consumption. If that were the case, price inflation would have been horrendous as total debt increased dramatically over the last decade.

When the government borrows money – issues treasuries – to fund a stimulus payment, it is inflationary to the extent that the stimulus payments are spent and used to fund consumption. If recipients of the payments use them to pay down debt or otherwise save and do not consume with the money, the stimulus payments are not inflationary. Of course, the reverse happens when the debt matures and is paid off. This ties to the great debate of the impact of mortgage equity withdrawal, which effectively acted as an ongoing stimulus payment over the last eight to ten years.

On the original topic: Deflation leads to a stronger currency, which decreases import prices and weakens the export sector. The former creates deflationary expectations, and the latter decreases the velocity of money. Both result in deflation. Whether this feedback loop, which also works for inflation and a weakening currency, starts with prices or the currency is a moot point, though currency changes might come first, driven by speculation or risk aversion.

In any event, it is hard for me to imagine Fed and Treasury not intervening to weaken the dollar to ward off deflation. Right now things look awfully deflationary. Watch for a lowered Fed Funds Rate or – not sure how this would work – U.S. open market operations to sell dollars and buy foreign currencies.

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.

[Fearful]

[quote=kewp]

Baranaby33 is not correct. Repaying debt is not deflationary in the classic sense. [/quote]

Yes and no. If the money borrowed to fund consumption comes from a pool of financial assets, then the borrowing is price inflationary. If the money borrowed to fund consumption comes from workers’ wages, then it is not price inflationary.

The fallacy comes from thinking of all money as one pool that is being used for consumption. If that were the case, price inflation would have been horrendous as total debt increased dramatically over the last decade.

When the government borrows money – issues treasuries – to fund a stimulus payment, it is inflationary to the extent that the stimulus payments are spent and used to fund consumption. If recipients of the payments use them to pay down debt or otherwise save and do not consume with the money, the stimulus payments are not inflationary. Of course, the reverse happens when the debt matures and is paid off. This ties to the great debate of the impact of mortgage equity withdrawal, which effectively acted as an ongoing stimulus payment over the last eight to ten years.

On the original topic: Deflation leads to a stronger currency, which decreases import prices and weakens the export sector. The former creates deflationary expectations, and the latter decreases the velocity of money. Both result in deflation. Whether this feedback loop, which also works for inflation and a weakening currency, starts with prices or the currency is a moot point, though currency changes might come first, driven by speculation or risk aversion.

In any event, it is hard for me to imagine Fed and Treasury not intervening to weaken the dollar to ward off deflation. Right now things look awfully deflationary. Watch for a lowered Fed Funds Rate or – not sure how this would work – U.S. open market operations to sell dollars and buy foreign currencies.

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.

[Fearful]

[quote=kewp]

Baranaby33 is not correct. Repaying debt is not deflationary in the classic sense. [/quote]

Yes and no. If the money borrowed to fund consumption comes from a pool of financial assets, then the borrowing is price inflationary. If the money borrowed to fund consumption comes from workers’ wages, then it is not price inflationary.

The fallacy comes from thinking of all money as one pool that is being used for consumption. If that were the case, price inflation would have been horrendous as total debt increased dramatically over the last decade.

When the government borrows money – issues treasuries – to fund a stimulus payment, it is inflationary to the extent that the stimulus payments are spent and used to fund consumption. If recipients of the payments use them to pay down debt or otherwise save and do not consume with the money, the stimulus payments are not inflationary. Of course, the reverse happens when the debt matures and is paid off. This ties to the great debate of the impact of mortgage equity withdrawal, which effectively acted as an ongoing stimulus payment over the last eight to ten years.

On the original topic: Deflation leads to a stronger currency, which decreases import prices and weakens the export sector. The former creates deflationary expectations, and the latter decreases the velocity of money. Both result in deflation. Whether this feedback loop, which also works for inflation and a weakening currency, starts with prices or the currency is a moot point, though currency changes might come first, driven by speculation or risk aversion.

In any event, it is hard for me to imagine Fed and Treasury not intervening to weaken the dollar to ward off deflation. Right now things look awfully deflationary. Watch for a lowered Fed Funds Rate or – not sure how this would work – U.S. open market operations to sell dollars and buy foreign currencies.

Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.

[Author]

Posts